Todays Trader’s Blog guest is Trader Travis, owner of Learn-Stock-Options-Trading.com. Like many of you, Travis spent a good bit of time looking for a trading system that fit his style and mindset that could supplement his income. During his search, Travis stumbled onto MarketClub, and has developed an interesting way to incorporate it into his trading style. We think you will really enjoy this article regarding his trading experiences. Be sure to comment with any questions for Travis, or add your own MarketClub tips and tricks in our comments section.
I hope you've enjoyed the Learning Options series that MarketClub has provided for you.
Today I wanted to share my personal experiences with using MarketClub as an options trader. In my humble opinion, options trading success with MarketClub comes down to 3 primary things:
• Trade in the same direction of the general market (Dow, Nasdaq, and S&P)
• Only trade when the stock and the general market both have strong trends either up or down
• Then sit back and allow the trade triangles to guide your entry and exit points
Seems rather simple and common sense, but you'd be surprised how many of us don't use common sense in trading. Now the Silver ETF seems to be its own market and seems to play by its own set of rules so here is an example of how a real trade played out…
Quick mini lesson:As option buyers we "generally" use call options to make money when stocks go up in price, in the same way people buy stocks when they think it's going to go up.Also, we "generally" use put options to make money when stocks fall in price in the same way people short stocks when they think it's going down.---
Towards the end of April I heard CNBC talk about the Silver ETF (SLV). They were hyping the stock up like it was the best thing since peanut butter sandwiches were created (yeah that was corny, but I couldn't think of anything else to say).
Mainly it seemed to me they were encouraging people to get in and implying it will be the next big thing (this is just my interpretation of what they said). So, I translated that into my own trading talk and I heard, "Hey, start looking for a short opportunity because we're about to start selling into strength."
I've never traded silver and never cared to, but if it was going to drop like a rock I wanted to be there and take advantage of it. So, I watched it for a few days and noticed it did indeed drop in price. Two down days does NOT make a trend so, I waited some more.
It dropped again on May 4th and I figured, "What the heck, I can do a small speculative trade and stay in it for 1-2 days." What do you know, MarketClub also gave a red weekly trade triangle that day. I bought a June 38 Put option on SLV for $2.84.
The next day SLV gapped down in price and that trade was now up +99% ROI. I love the power and leverage of options.
Warning: Leverage is just a complicated was to say, "Hold on tight, you're in for a wild ride. Expect 20-30% fluctuations in your trade value a day." The stock may move up/down 1% and your option will move up/down 20-30%. That positive leverage you see above also works in reverse, but I'll save those horror stories for another day.
Anyway…I looked at that almost 100% ROI in a day and I said to myself, "Travis you should take your profits and run. After all, it was a speculative trade and you achieved your results." He- he, you know where this is going…
Nope, greed won the day, and I convinced myself using all the logical arguments I could to sit tight and "just see" what it would do the next day. Geez, I expected a slight pullback in the upward direction, but I didn't expect it to gap up!
This time I stopped being an idiot and sold my contract for $3.45 for a 21.5% ROI. Not the 99% I once had, but you won't see my crying over any profit I make.Sorry, MarketClub…my profit was dwindling down so my profit exit trumped my technical exit (trade triangle).
Take away: Always have more than one exit strategy planned. Also, maybe I'm weird, but I'd rather be 100% correct on my directional bias instead of guessing where the market is going to be and having a 50/50 chance. Mainly, I like to trade what I see and not what I think I'm going to see.
MarketClub gave me a red triangle; I took the short position and made money. Arguing with a trend is like jumping in a river and swimming upstream because you think one day the current will change and you'll be ahead of the pack. Nah, I'd rather get a floatie, grab my favorite non-alcoholic drink (wink), and float downstream letting the current do all the work.
**Please note: This article was intended for educational and entertainment purposes only. If you are not currently an options trader than my advice would be, "Beware of the Bright Shiny Object". Stay focused, and master your current craft (stocks, forex, etc.) and you will trade circles around all the traders who bounce around year to year chasing the next greatest thing.